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How Online Trading Works


Choosing a Broker
E*Trade, Ameritrade and Charles Schwab are three of the many online brokerages.
E*Trade, Ameritrade and Charles Schwab are three of the many online brokerages.
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Before you can trade stocks online, you have to select an online broker. Your online broker will execute your trades and store your money and stock in an account. The online trading industry has seen lots of mergers and acquisitions, but there are still many firms to choose from. Different firms also offer different levels of help, account types and other services. Here are some things you should keep in mind as you look for a broker.

  • How much money you plan to invest. Most firms require investors to have a certain amount of money to open an account. This is different from a minimum account balance -- although most brokerages have those, too.
  • How frequently you plan to make trades. Are you going to buy one stock and hold on to it? If so, you'll need to make sure the brokerage doesn't charge a fee for account inactivity. On the other hand, if you're going to make lots of trades, you'll want a lower fee per trade. Regardless of how much you plan to use your account, you should evaluate how much using the site will cost you.
  • Your level of trading experience and how much guidance you need. Some of the least expensive brokerages don't offer much in the way of research or broker-assisted trades. Others, while still moderately priced, offer market analysis, articles on successful trading and help from licensed brokers.
  • Any other services you may want. A few trading sites let you buy and sell stocks but not much else. Others are more like major banks, offering debit cards, mortgage loans and opportunities for other investments like bonds and futures.

Some sites, such as Keynote and Smartmoney, rate online brokerages based on success rates, customer service response time, trading tools and other factors. They can help you make a decision as you shop around for the best trading site for your needs, but keep in mind that there are no official standards for ranking or evaluating brokerages.

As with any site that requires your personal and financial information, you should make sure your online broker has good security measures, including automatic logouts and transmission encryption. You should also make sure your brokerage is reputable. The Investing Online Resource Center has a good list of links you can use to make sure your firm is legitimate.


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